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Microsoft CEO Steve Ballmer this week detailed perhaps the most complete high-level view of the company's emerging software-plus-services strategy that it has presented so far.

Ballmer's talk came in a "Strategic Update" presentation given on Monday to Wall Street analysts, which reiterated in part how the company's bid to acquire Yahoo fits into its overall business.

The annual meeting is a regular event planned long before the company's record-setting offer for Yahoo last Friday.

As a result, Ballmer spent most of his time describing Microsoft's longer-term efforts -- including how its products fit into its emerging "software-plus-services" push, and how the company intends to monetize each product category.

More than two years ago, Microsoft began espousing its own version of the industry's burgeoning software-as-a-service business model (SaaS) (define). Unlike some competitors, Microsoft's software-plus-services plan does not -- at least not immediately -- transition the company to a strictly Web-based business model.

Instead, it has chosen a route that uses the Web to offer some services that are available to users through a simple browser interface  like competitors' offerings. At the same time, it is also offering services "in the cloud" that enhance the power of rich clients such as PCs running Windows and Office.

"When we talk about the transformation of our business to a world of software-plus-services, we're talking about everything we do transforming over the next several years to a world of software-plus-services," Ballmer told analysts.

"Each and every one of these businesses, on top of a consistent cloud platform, transitions to have additional revenue and profit opportunities, based upon this transformation to the cloud," he added.

Several pieces of the software-plus-services puzzle have already begun to emerge. For instance, in the area of Windows, the company is well underway rolling out its Windows Live Services products, which are free to users and funded by advertising.

For corporate desktop users, however, advertising is not appropriate, so the company will monetize its offerings in that category as part of its Microsoft-hosted Online Services for Business, providing functions on a subscription basis.

Introduced last fall, Microsoft's Online Services for Business are available to large enterprises with 5,000 or more seats. The offering features hosted versions of Exchange e-mail, SharePoint document management and Office Communications.

In terms of core server capabilities such as virtualization, security and management, high-performance computing, and Web serving, Ballmer said those functions will be offered "in the cloud"  that is, as part of the company's growing online infrastructure. Those, too, will be offered on a subscription basis.

"One of the toughest things for most companies is actually to do the deployment of their servers, their datacenters, the propagation of applications to those servers," Ballmer said. "As we productize the cloud platform that I talked about, that becomes a subscription-based service that we can offer small companies, startups, larger companies, and you'll hear more about this opportunity and this investment over the course of the next 12 months."

The plan resonated with at least one industry-watcher.

"That is more detail than they've given [previously], but it makes sense," Matt Rosoff, lead analyst for consumer products and corporate news at researcher Directions on Microsoft told InternetNews.com in an e-mail.

"I don't think larger businesses would be willing to accept advertising in hosted applications, and a lot of them are already on multiyear license agreements with Microsoft, so moving to a subscription basis wouldn't be too jarring," Rosoff said.

For small and medium-sized businesses and consumers, Microsoft is introducing products such as Office Live Workspace, which is free but ad-supported. It's also offering Office Live Small Business, which is free for a basic version, but more feature-packed editions are subscription-based.

Also targeting small and medium-sized businesses are Microsoft's plans for offering its own hosted versions of its Dynamics-branded business management products -- notably, Dynamics CRM Live, an upcoming version of CRM 4.0 hosted by the Redmond, Wash. software colossus itself.

Normally, CRM 4.0, which just shipped, is available for customers to self-host or for partners who will provide the hosting.

CRM Live is currently in beta test and is scheduled for general availability during the first half of 2008. It will be available on a subscription basis.

Meanwhile, Microsoft's Live consumer-oriented offerings will tend to remain advertising-funded. These include Live Search, which competes with Google and Yahoo's search engines. Of course, Microsoft's MSN portal and its aQuantive acquisition also support the company's ad-driven offerings.

Though Ballmer didn't mention Yahoo's products specifically, Yahoo's search engine and advertising technologies would likely fall under this category. Its other services, such as Yahoo Mail and the Flickr photo sharing service, also would appear to fit in the same bin as Microsoft's Live consumer services.

The presentation also positioned the company's popular Xbox Live subscription-based online gaming service as a software-plus-service product, alongside subscription offerings for Microsoft's Zune music player and its Mediaroom IPTV set-top box technologies. It also includes advertising on Windows Live Mobile-based devices.

Additionally, the company gains revenues, and plans to gain more, via transactions on its Xbox Live, Zune and Mediaroom offerings.

"I want to make sure that you understand that in every one of these cases, we are investing in some software-plus-services-based opportunity to extend our value," Ballmer said.

So what about the proposed Yahoo takeover?

"What we're trying to do is take some momentum that we have and ask, 'How do we really increase that momentum even further? What else can we do?'" he added.

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